Turnaround Steps Show at Leaner El Paso Corp.

HOUSTON — When Douglas Foshee became El Paso Corp.'s chief executive three years ago, he had a mess on his hands. Now he's running a much slimmer company out of crisis mode.

Gone are more than $7 billion in assets, including two refineries, El Paso's natural gas processing business and a slew of power plants. Gone with much of those assets are nearly two-thirds of its former workforce of 15,000. And gone is the specter of failure as Foshee looks toward growth, not restructuring.

"We're not yet to the promised land, but we've made great progress," said Foshee, 47.

El Paso, the nation's largest natural gas pipeline company, still has problems.

Its credit ratings remain at "junk" status. Its stock, although it closed Friday at $14.59 after once languishing below $4, is far from the $70 of its heyday. Its troubled exploration and production unit is improving, but not to the point where analysts sing its praises.

"They had a near-death experience," Standard & Poor's analyst Ben Tsocanos said. "They've made a lot of right moves, I think, from a credit standpoint, and they certainly have upward momentum."

That picture is starkly different from the one Foshee faced when he left his post as Halliburton Co.'s chief operating officer in 2003 to run El Paso.

The company had $25 billion in debt, a hodgepodge of assets and cultures from years of acquisitions, a board that barely won a vitriolic proxy fight that summer and a stock badly bruised by investors who fled the energy sector in the wake of Enron Corp.'s 2001 collapse.

El Paso had agreed to pay $1.7 billion to settle lawsuits as well as state and federal probes in California stemming from allegations of manipulating California's natural gas market in 2000, when the state was plagued by skyrocketing prices.

Production fell by a third in the same quarter that Foshee signed on. A few months later, shortly after unveiling a detailed plan to cut debt and sell assets, El Paso announced a 41% reduction in proven oil and gas reserves, which analysts watch to gauge an energy company's future earnings power.

Then came accounting revisions for natural gas hedges which, combined with the reserves reduction, led to restated financial results to reflect billions of dollars in losses.

And a string of ex-El Paso traders were slapped with criminal charges related to trading irregularities in the early part of the decade.

"Underneath all that was that," said Foshee, gesturing toward a framed U.S. map of the company's 56,000-mile interstate pipeline network on the wall of a conference room at the company's Houston headquarters.

So Foshee built a new management team that narrowed El Paso's businesses to running its pipeline network and turning around its exploration and production unit.

"We just started a very disciplined process of getting rid of everything that was a distraction from that purpose as quickly as possible," Foshee said.

In addition to shedding refining, natural gas processing and power plants, El Paso retreated from most international operations except for Brazil, dumped its telecommunications interests and wound down trading. It now has 5,500 employees and debt of $14.5 billion.

Analysts have noticed.

Mike Heim, an analyst at A.G. Edwards & Sons, called restructuring efforts by Foshee's team "a clear success," but noted continued struggles in exploration and production.

"They've done a great job on financial restructuring, but there are still questions on operational restructuring."

The company aims to grow earnings from pipelines by 4% to 6% a year and grow exploration and production through both the drill bit and acquisitions.

"It's only in the last six to nine months that we've really begun to be able to contemplate our longer-term future using the word 'growth,' " Foshee said.